There is a lot of buzz about a mortgage product called the Cash Back Mortgage. Essentially, this is a mortgage product that gives the home buyer a cash rebate back upon closing of their purchase. This cash back rebate may be used to pay bills, invest, or even use as payment of your down payment and closing costs for the transaction. This has created essentially a 'no money down' purchase option for home buyers. They can use this mortgage product and finance a home to 100% of its value, plus have cash available to pay for the legal fees and taxes.
Sounds pretty sweet?
The Cash Back mortgage is a great product. It serves a certain need in the mortgage marketplace, however, it is not the best product for everyone. The cash back mortgage comes with a few details in the fine print. The first is that it is much more difficult to qualify for. That means you must have better than average credit and you must not have a ton of debt. Also, the cash back mortgage product comes with a slightly higher interest rate. The interest rate for it is almost 2% higher than the interest rate for the same mortgage term and amortization if a buyer were to have 5% down payment. As a result, we still prefer to see buyers come up with 5% down payment, either from savings or a gift, but it is often worthwhile for the interest money that is saved.
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Let us do a comparison for you of a Cash Back VS a 5% down situtation and see which is better for you.
Calgary Mortgage Broker